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An Introduction to SaaS Metrics & Churn:
The Secret to Subscription Success
chartmogul.com
© 2015 Chartmogul Ltd
We’re a SaaS business too.
Here’s how we measure ourselves and
update our investors
Marketing
Funnel
Inside
Sales
SaaS
Revenue
Metrics
Financials
© 2015 Chartmogul Ltd
KPIs We Care About (and you should too)
Customers
Monthly Recurring Revenue (MRR)
Annual Recurring Revenue (ARR)
Average Revenue Per Account (ARPA)
MRR/Customer churn rate
Customer Lifetime Value (LTV)
Customer acquisition cost (CAC)
© 2015 Chartmogul Ltd
SaaS Revenue Metrics:
• Differ from traditional accounting in that they
are mostly interpreted forward projections
• Don’t make standard financial reporting
(gross/net revenue, etc) any less relevant
• Are more relevant to the management team
on a day-to-day basis.
© 2015 Chartmogul Ltd
Monthly Recurring Revenue (MRR)
MRR is the backbone of any subscription business.
“The amount of revenue you would generate next month if all customers are paying
monthly and you had no new customers, cancellations, upgrade or downgrades.”
© 2015 Chartmogul Ltd
Breaking Down MRR Into “Movements”
New business MRR - A lead that converts into a paid customer
Expansion MRR - Any increase in the MRR of an existing customer
Contraction MRR - Any decrease in MRR of an existing customer
Churn MRR - Decreases in MRR from customer cancellations
Reactivation MRR - Previously churned customers resubscribing
© 2015 Chartmogul Ltd
Customer Churn Rate (B2B)
What is it?
The rate at which you are losing customers through subscription
cancellations.
Calculation
Segmentation is key to getting meaningful Churn metrics.
© 2015 Chartmogul Ltd
MRR Churn Rate (B2B)
What is it?
The rate at which you are losing revenue through subscription
cancellations.
Calculation
Segmentation is key to getting meaningful Churn metrics.
© 2015 Chartmogul Ltd
Positive Churn vs. Negative Churn
Many of the best known public SaaS companies have negative churn, e.g.
New Relic, Zendesk, but not a requirement to be a unicorn, e.g. HubSpot.
Image credits to Tomasz Tunguz
:( :D
© 2015 Chartmogul Ltd
Churn Rate (B2C)
A B2C formula
Devin Brady (Recurly) wrote about a better way to calculate churn
which we think is more useful for B2C companies (e.g. Netflix)
Calculation
Iterating through each day in the selected period (e.g. month/
quarter) we calculate as follows:
SUM(1 - #_active_customers_at_end_of_day /
#_active_customers_at_the_start_of_day)
© 2015 Chartmogul Ltd
Churn Recognition
Best practice is to recognise churn at the end of the paid up billing
period.
© 2015 Chartmogul Ltd
Churn classification
Pro-active churn - Customer chose to cancel
Passive churn - Customer didn’t update credit card
Happy churn - Finished using your product (subset of pro-active churn)
Churn that isn’t really churn - Money-back guarantees, etc.
What is a reasonable level of Churn?
Most SaaS companies selling to SMBs have quite high monthly churn (3-5%)
The more up-market you go the lower the churn rate (usually)
Many public SaaS companies have negative net churn, as high as 20%
© 2015 Chartmogul Ltd
Cohort Analysis - Identifying “Risky” Months
Cohort analysis is the best way to truly understand how your
subscriptions evolve over their lifespan.
CustomerCohorts
Months Since Signup
© 2015 Chartmogul Ltd
Customer Lifetime Value (LTV)
What is it?
An estimate of the total subscription value of an average customer.
Calculation
Helps with decisions on CAC spending, growth predictions.
ARPA
Customer churn
LTV =
© 2015 Chartmogul Ltd
Customer Lifetime Value (LTV)
This simple formula is a good starting point, but it doesn't take
into account two important factors:

1. Churn doesn't occur linearly















2. Many companies experience significant account expansion
following an initial purchase.
The blue line results
in 10% less revenue
over the same period.
© 2015 Chartmogul Ltd
Customer Lifetime Value (LTV)
A Modular LTV Formula
© 2015 Chartmogul Ltd
Learn more from the leaders in SaaS thinking…
Jason M. Lemkin
@jasonlk
saastr.com
Christoph Janz
@chrija
theangelvc.net
David Skok
@BostonVC
forentrepreneurs.com
Tomasz Tunguz
@ttunguz
tomtunguz.com
+
chartmogul.com/blog
© 2015 Chartmogul Ltd
ChartMogul Loves SaaS Metrics
The ChartMogul SaaS Cheat Sheet Trilogy
© 2015 Chartmogul Ltd
An Analysis of B2B SaaS
Pricing Pages
© 2015 Chartmogul Ltd
Webinar – April 29, 2015
An Analysis of B2B SaaS
Pricing Pages
Even More Resources(!)
• A Better Way to Calculate your Churn Rate

• Ultimate SaaS Metrics Cheat Sheet

• Ultimate Churn Metrics Cheat Sheet

• Ultimate Cohort Analysis Cheat Sheet

• Ultimate Guide to SaaS Customer Lifetime Value (LTV)

• Why SaaS startups should aim for negative MRR churn
© 2015 Chartmogul Ltd
Thank you.
@chartmogul
support@chartmogul.com
© 2015 Chartmogul Ltd

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SaaS Metrics: The Secret to Subscription Success

  • 1. An Introduction to SaaS Metrics & Churn: The Secret to Subscription Success chartmogul.com
  • 2. © 2015 Chartmogul Ltd We’re a SaaS business too. Here’s how we measure ourselves and update our investors Marketing Funnel Inside Sales SaaS Revenue Metrics Financials
  • 3. © 2015 Chartmogul Ltd KPIs We Care About (and you should too) Customers Monthly Recurring Revenue (MRR) Annual Recurring Revenue (ARR) Average Revenue Per Account (ARPA) MRR/Customer churn rate Customer Lifetime Value (LTV) Customer acquisition cost (CAC)
  • 4. © 2015 Chartmogul Ltd SaaS Revenue Metrics: • Differ from traditional accounting in that they are mostly interpreted forward projections • Don’t make standard financial reporting (gross/net revenue, etc) any less relevant • Are more relevant to the management team on a day-to-day basis.
  • 5. © 2015 Chartmogul Ltd Monthly Recurring Revenue (MRR) MRR is the backbone of any subscription business. “The amount of revenue you would generate next month if all customers are paying monthly and you had no new customers, cancellations, upgrade or downgrades.”
  • 6. © 2015 Chartmogul Ltd Breaking Down MRR Into “Movements” New business MRR - A lead that converts into a paid customer Expansion MRR - Any increase in the MRR of an existing customer Contraction MRR - Any decrease in MRR of an existing customer Churn MRR - Decreases in MRR from customer cancellations Reactivation MRR - Previously churned customers resubscribing
  • 7. © 2015 Chartmogul Ltd Customer Churn Rate (B2B) What is it? The rate at which you are losing customers through subscription cancellations. Calculation Segmentation is key to getting meaningful Churn metrics.
  • 8. © 2015 Chartmogul Ltd MRR Churn Rate (B2B) What is it? The rate at which you are losing revenue through subscription cancellations. Calculation Segmentation is key to getting meaningful Churn metrics.
  • 9. © 2015 Chartmogul Ltd Positive Churn vs. Negative Churn Many of the best known public SaaS companies have negative churn, e.g. New Relic, Zendesk, but not a requirement to be a unicorn, e.g. HubSpot. Image credits to Tomasz Tunguz :( :D
  • 10. © 2015 Chartmogul Ltd Churn Rate (B2C) A B2C formula Devin Brady (Recurly) wrote about a better way to calculate churn which we think is more useful for B2C companies (e.g. Netflix) Calculation Iterating through each day in the selected period (e.g. month/ quarter) we calculate as follows: SUM(1 - #_active_customers_at_end_of_day / #_active_customers_at_the_start_of_day)
  • 11. © 2015 Chartmogul Ltd Churn Recognition Best practice is to recognise churn at the end of the paid up billing period.
  • 12. © 2015 Chartmogul Ltd Churn classification Pro-active churn - Customer chose to cancel Passive churn - Customer didn’t update credit card Happy churn - Finished using your product (subset of pro-active churn) Churn that isn’t really churn - Money-back guarantees, etc. What is a reasonable level of Churn? Most SaaS companies selling to SMBs have quite high monthly churn (3-5%) The more up-market you go the lower the churn rate (usually) Many public SaaS companies have negative net churn, as high as 20%
  • 13. © 2015 Chartmogul Ltd Cohort Analysis - Identifying “Risky” Months Cohort analysis is the best way to truly understand how your subscriptions evolve over their lifespan. CustomerCohorts Months Since Signup
  • 14. © 2015 Chartmogul Ltd Customer Lifetime Value (LTV) What is it? An estimate of the total subscription value of an average customer. Calculation Helps with decisions on CAC spending, growth predictions. ARPA Customer churn LTV =
  • 15. © 2015 Chartmogul Ltd Customer Lifetime Value (LTV) This simple formula is a good starting point, but it doesn't take into account two important factors: 1. Churn doesn't occur linearly
 
 
 
 
 
 
 
 2. Many companies experience significant account expansion following an initial purchase. The blue line results in 10% less revenue over the same period.
  • 16. © 2015 Chartmogul Ltd Customer Lifetime Value (LTV) A Modular LTV Formula
  • 17. © 2015 Chartmogul Ltd Learn more from the leaders in SaaS thinking… Jason M. Lemkin @jasonlk saastr.com Christoph Janz @chrija theangelvc.net David Skok @BostonVC forentrepreneurs.com Tomasz Tunguz @ttunguz tomtunguz.com + chartmogul.com/blog
  • 18. © 2015 Chartmogul Ltd ChartMogul Loves SaaS Metrics
  • 19. The ChartMogul SaaS Cheat Sheet Trilogy © 2015 Chartmogul Ltd
  • 20. An Analysis of B2B SaaS Pricing Pages © 2015 Chartmogul Ltd
  • 21. Webinar – April 29, 2015 An Analysis of B2B SaaS Pricing Pages
  • 22. Even More Resources(!) • A Better Way to Calculate your Churn Rate • Ultimate SaaS Metrics Cheat Sheet • Ultimate Churn Metrics Cheat Sheet • Ultimate Cohort Analysis Cheat Sheet • Ultimate Guide to SaaS Customer Lifetime Value (LTV) • Why SaaS startups should aim for negative MRR churn © 2015 Chartmogul Ltd